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How is the US Bitcoin ETF Working Out? Lessons From Around the World
How has the first US Bitcoin ETF been working out since its inception on October 20? And what lessons can we learn from other Bitcoin correlated ETFs around the world?
The first trade of this ETF — the ProShares Bitcoin Strategy ETF (NYSE:BITO) — was one of the biggest events in crypto this year. Has it been worth the excitement? Its price performance since first trading has been insignificant. What can we expect given other Bitcoin correlated ETFs already present around the world? Which countries are offering such ETFs, and do they offer a spot Bitcoin ETF?
These are the questions currently swirling around the crypto sphere. I will give an idea of other crypto ETFs, and when we should expect to see a spot Bitcoin ETF on the horizon for the US.
A Summary of Bitcoin ETFs
The inaugural day of trading of the BITO ETF marked a landmark event for Bitcoin within the traditional financial system. It marks the day the SEC finally made progress regulating Bitcoin, and is also the first day that US institutional funds were able to offer their clients exposure to Bitcoin.
There was a lot of anticipation for the BITO’s first trading day both as a milestone for Bitcoin adoption, and for a mountain of demand seeking the convenient packaging of an ETF. After its second day of trading, the BITO managed to reach USD $1 billion in assets under management (AUM) in record time. The previous record was held by the GLD ETF from their first trading in 2004. The BITO is correlated to Bitcoin via futures contracts and offers no direct exposure to Bitcoin.
BITO’s Price performance
BITO’s price reached an all time high of USD $43.62 on its first day of trading, an all time low of USD $37.65 a week later, and is about USD $40.00 at the time of writing. This price performance does not give us much to discuss.
This is a good thing, because it is intended that BITO tracks the price of Bitcoin as closely as possible. Bitcoin’s price has been relatively flat since BITO’s first trading so they are on track thus far.
Bitcoin ETFs Around The World
Which countries have beaten the US to the chase in offering a Bitcoin correlated ETF? At the least, Canada, Germany, Switzerland, and Brazil have done that.
Canada offers both futures based and spot Bitcoin ETFs, Switzerland and Germany share the spot Bitcoin 21Shares Bitcoin ETP, and QR Capital has a spot Bitcoin ETF listed in Brazil. Most, if not all, of these ETFs are 100% backed by Bitcoin. The 21 Shares also offers 100% backed spot ETPs that track the price of Polkadot, Solana, Cardano, and Etherum.
Canadian Bitcoin Spot vs Futures ETFs
The three largest Bitcoin ETFs in Canada (3iQ Coinshares, CI Galaxy Bitcoin, and Purpose Bitcoin) are all spot Bitcoin ETFs. The 3iQ Coinshares and Purpose Bitcoin ETFs each have about USD $1 billion in AUM. Compare this to an AUM of about USD $8 million for Canada’s largest futures based Bitcoin ETF, the Horizon BetaPro Bitcoin ETF. Consider this ratio (125:1) when you try to imagine the total AUM the first spot Bitcoin ETF in the US might reach.
It is also looking like a wave of new crypto ETFs are making their way to Canada. Purpose Investments alone have filed to list three more crypto ETFs seeking to provide exposure to DeFi.
Alternative Cryptocurrency ETFs
Aside from ETFs that offer direct exposure, or even a derivative of crypto, there are the opportunities to invest in crypto related companies via ETFs.
These can be referred to as the ETFs offering exposure to the Pick and Shovel businesses in crypto. Examples of companies listed on such exchanges are HUT8 Mining Ltd, and Immutable Holdings. Three examples of ETFs holding a basket of such companies are CRPT, SATO, and BLKC.
When Can We Expect A US Spot Bitcoin ETF?
The SEC has a long list of applications from funds wishing to offer a spot Bitcoin ETF, and not one has passed. However, the successful listing of the BITO means that we are inching in the right direction.
Recent interviews with Steven McClurg from Valkyrie, and David LaValle from Grayscale Investments indicate a shared position. They both seem to have indicated that we could see a spot Bitcoin ETF in the US as early as mid 2022.
Looking Ahead
Aside from its impressive AUM, the BITO’s price performance has been as expected. It is inferior to a spot Bitcoin ETF, but has demonstrated progress toward Bitcoin’s regulation and adoption in the US. Spot Bitcoin ETFs from around the world have shown us that the US is lagging behind – effectively blocking a dam of funds looking for direct exposure to Bitcoin. If the ratio of AUM between futures-based and spot Bitcoin ETFs in Canada are considered, then we might expect the nonexistent US spot Bitcoin ETF to reach an AUM near USD $100 billion. The earliest predictions surmise that we might see a spot Bitcoin ETF in the US by mid 2022.
Until then, there are many more crypto ETFs within and outside the US offering both direct and indirect exposure to crypto. The US Bitcoin ETF is working out as expected. What we have learned from the rest of the world is that the BITO has been a bittersweet success in lieu of greater potential once a spot Bitcoin ETF can pass the SEC’s regulation.
